New Regulations Increase Penalties for Late Tax Payment Starting May 2025

Starting May 31, 2025, UK taxpayers who delay in settling their tax bills will face stiffer penalties as specified in the newly issued Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025. This adjustment, made by His Majesty's Revenue and Customs (HMRC), aims to encourage timely tax payments by significantly upping the fines for late payments.

What's Changing?

• First Penalty Increase: If you haven't paid your taxes within 15 days past the due date, the initial penalty will rise from 2% to 3% of the unpaid tax amount. This change applies to income tax, capital gains tax for the year 2024-25 and beyond, and value-added tax (VAT) for accounting periods starting on or after April 1, 2025.

• Second Penalty Increase: Should the tax remain unpaid after 30 days, the penalty increases from 4% to a hefty 10% per annum of the outstanding amount.

These new penalties apply unless the taxes pertain to earlier tax years or accounting periods before April 2025.

Why the Hike?

The updated regulations are part of a broader initiative to enhance compliance and ensure that taxes are paid promptly. By increasing penalties, HMRC hopes to provide a stronger deterrent against late payments, ensuring smoother financial operations and funding for public services.

For detailed information and to see how these changes might impact you, a Tax Information and Impact Note will be available on the UK government's website.

In summary, if you're looking to avoid these increased penalties, make sure your tax payments are timely. For those who might struggle to meet these deadlines, it could be beneficial to explore setting up a time-to-pay agreement with HMRC.